Why Carriers Still Hold the Key to Handset Sales

Microsoft last week was forced to pull the plug on the Kin, a two-phone lineup that debuted on Verizon Wireless just a few weeks ago. As I discuss in my weekly column over at GigaOM Pro, the move is just the latest piece of evidence that, when it comes to selling handsets, carriers still hold the key.

The Kin handsets drew some positive reviews (Gizmodo called them “The best handsets you’ll never buy”) and quickly became cheap, thanks to desperate price cuts, but they failed to gain traction due largely to a lack of promotion by the nation’s largest carrier. And as Kevin noted last week, the Kin was a feature phone whose sales were shackled by Verizon’s full-featured data plan pricing — an albatross that might not have existed if Microsoft had better relations with the operator.

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Microsoft isn’t the only manufacturer to have taken its lumps for weak carrier relationships. Among Nokia’s many troubles is its inability to bend to the will of North American carriers. And last month, Google’s Andy Rubin conceded that his company’s bold experiment to sell the Nexus One directly to consumers failed “to fundamentally change the way phones are sold.” Palm produced a top-notch platform in webOS, but its fate was sealed when Sprint — then Verizon, then AT&T — declined to back the Pre and Pixi with big marketing campaigns.

Meanwhile, Verizon has consistently demonstrated its ability to drive handset sales. Its $100 million ad campaign for the Motorola Droid launch was an unqualified success, fueling Droid sales that outpaced the Nexus One by a factor of nine in its first 74 days on the market. The carrier’s aggressive “buy one, get one” promotion played a huge role in the success of RIM’s BlackBerry Curve, which made headlines last year by outselling the iPhone in the first quarter of 2009.

Of course, the iconic iPhone is a glaring exception to the rule that carriers must be actively involved in marketing for a handset to become a hit. There is only one Apple though, and other manufacturers have neither Cupertino’s promotional acumen nor its deep pockets. So even as the Apples and Googles of the world elbow their way into the mobile space, network operators are crucial to successful hardware sales. Astoundingly, that’s a lesson some manufacturers have yet to learn.

Palm and Google lacked a retail presence. Should be a story about the value of Brick an Mortar. With that being said, Apple is the lone manufacturer on the list that has more than one significant product.

Why haven’t mobile networks realised how important they are and leveraged it?

A potential answer might be because they’re short-sighted unimaginative and greedy (on the executive level) always looking at the next financial quarter/s, otherwise they would have executed the concepts of “Apps” and Mapping and LBS and Micro-blogging and Social networks long before any of the current category-leaders : They used to charge 70% for apps, etc. and for every single location-call/request, and even after what Google did with Google Earth on the PC Desktop, they didn’t think of the bigger picture if they did the same with their own versions on their own networks – ALL ideas from long before Google/Facebook/4Square’s birth.

E.g. Imagine if Vodafone was to buy 4Sq and not only pre-install it on all it’s handsets as a core functionality, but pre-populate the data from the billing-relationship, then use it’s business accounts to push the revenue-generation side combined with a completely self-serving dashboard using it’s existing advertising and recurring-revenue infrastructure.

And still, they continue to leak opportunities in spite of the various R+D labs and smart techs within them.

Kin offered us what exactly? Native Photobucket.in every other way, the device is locked down. They will soon pull the plug on the servers driving the Kins one standout feature leaving adopters feeling ripped off. Useless.Kin isn’t even a smartphone, it’s a feature phone. We (the consumers) are not write as stupid as vendors would like us to be.

“There is only one Apple though, and other manufacturers have neither Cupertinoâ€™s promotional acumen nor its deep pockets.”

Let’s leave the debate about promotional acumen aside for a second and look at deep pockets. Microsoft, Google and Nokia’s pockets aren’t deep enough to spend the same amount of money marketing their phones as Apple does the iPhone? Seriously?

What missing here is a product as good as the iPhone, not cash or marketing ability.

I think this article should be titled “Why carriers are still somewhat important.”. It’s really a stretch to blame all the failures you mention strictly on the carrier. Palm didn’t fail only because it wasn’t promoted, same for Kin.

I don’t mean to place 100 percent of the blame on the carriers, Gazoobee, and you’re right that other factors were at play for both the Pre and the Kin. But I think it’s indisputable that carriers can make or break a phone.

I guess the difference between Apple iPhone and the Android handsets is that of pull vs. push. Given their appeal and niche, Apple iPhones rely on pull marketing, (and AT&T track record being what it is) hence the carrier’s marketing scheme is secondary. In contrast, for Android devices, given the plethora of them and the multitude of carriers, a push strategy is essential for success, which is what Verizon successfully did with the Droid.

I guess I’m in the minority here. I understand and like the idea behind subsidized phone prices.

The average consumer doesn’t go into the store and shop on features (like a lot of geeks do), they shop on price. I know people that go in, find the cheapest phone they can get and walk out of the store. For those people the subsidized model works great.

For geeks who want to buy unlocked, out of contract devices, you can do that. You can go into the carrier store and buy the phone at a non-contract price, if you have that kind of money to spend. The US carrier market is still a free market and you can choose if you want to pay a subsidized price or a non-contract price.

The problem is non-contract prices are high, but that’s the case everywhere. Most average people aren’t going to pay $300-500 for a phone. And I understand the ETF thing too, if the carrier is going to subsidize the price on the phone they should be able to recoup that cost if the customer cancels their contract.

With all this being said, I would like the carriers to just sell the devices as is. Stop putting bloatware on them, locking them down, removing features, etc. Sell the device as it comes form the manufacturer. If we could get carriers to do that, I would see it as a big win. Because like I said, you as the customer can still walk into the store and buy the phone at a no contract price.

I see your point, Ray. But I don’t entirely agree, and I don’t know what the solution would be. I prefer the current model over a scenario in which the feds would dictate which phones must be supported by each carrier.

In the early days when standards were anything but, there was perhaps some justification in the US carrier’s behavior. Today there is little justification for this. The only real benefit the carriers provide now is subsidized contracts to a market addicted to credit.